Pizza Well-Done: Strong Gains At Domino's Prompt Deutsche Bank Downgrade

Jayson Derrick
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In this article:

Pizza chain Domino's Pizza, Inc. (NYSE: DPZ) has rewarded investors with a run-up in its stock over the past few years, and the valuation has led Deutsche Bank to shift to a neutral stance.

The Analyst

Deutsche Bank's Brett Levy downgraded Domino's Pizza's stock rating from Buy to Hold with an unchanged $235 price target.

The Thesis

Levy initiated coverage of Domino's Pizza's stock in December 2017 with a Buy rating and $210 price target that was lifted to 5 in February. Now that the stock has gained around 26 percent since the December initiation, a neutral stance may be warranted for three reasons, the analyst said:

A now-stretched valuation, with the stock trading near a 52-week high.

An unfavorable risk-reward profile, as Street expectations are assuming improved same-store sales momentum after last quarter's slowdown.

The overall pizza restaurant space is now "a little more competitive or potentially irrational."

Despite a downgrade from a bullish rating, Domino's Pizza's strategy, execution and positioning remain "constructive," the analyst said. But at the same time, a "more cautious" stance on the three biggest pizza chains is warranted, including Papa John's Int'l, Inc. (NASDAQ: PZZA) and Yum! Brands, Inc. (NYSE: YUM)'s Pizza Hut business, Levy said.

Price Action

Shares of Domino's Pizza were trading lower by about 2.5 percent at the time of publication Wednesday.

Related Links:

Domino's Pizza Gains Another Bull: Argus Upgrades To Buy

Amid Fragmented Pizza Market, Domino's Still Has Room To Grow

Latest Ratings for DPZ

Apr 2018

Deutsche Bank

Downgrades

Buy

Hold

Mar 2018

Morgan Stanley

Maintains

Equal-Weight

Equal-Weight

Mar 2018

Argus

Upgrades

Hold

Buy

View More Analyst Ratings for DPZ
View the Latest Analyst Ratings

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